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For Nike, Supply Chain Digitization is ‘Express Lane’ to Long-Term Growth

Nike has announced a renewed focus on footwear innovation for shoes in the sub $100 range, as well as a bevy of supply chain improvements designed to give the world’s most valuable apparel brand a leg up in the digital future.

In Nike’s latest earnings call, held shortly after the release of its Q3 financial report Friday afternoon, Nike, Inc. chairman, president and CEO, Mark Parker, and CFO, Andy Campion, spoke about how digitizing the brand’s supply chain will allow it to evolve for the future and pursue long-term growth.

During the call, Nike cautioned investors that its strong full-price selling and market growth will be partially offset by investments in its supply chain throughout the fourth quarter of its fiscal year, even after watching its record stock drop earlier in the day on weaker North American sales. However, after Nike Digital saw its first quarter crossing the billion dollar revenue mark in Q3, up 36 percent year-over-year to account for 15 percent of Nike’s brand revenue, the brand said it sees digitalization of both its consumer experience and its supply chain as a driver of “significant growth.”

Starting from the beginning of the process, Parker said Nike is looking to product creation as an area in which digitization can create additional “company-wide efficiencies.” Nike has fully digitized and cataloged its selection of more than 6,000 footwear materials to allow each of its design teams instant access to a database that will allow them to quickly co-opt material advancements and deal with shifts in availability.

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In addition, Parker says this new process will cut down on the number of physical material samples required to create a product and reduce lead times, inherently boosting the sustainability of the design stage and leading to faster product cycles.

RFID will also have a larger role in Nike’s supply chain pending the completion of an initiative that aims to digitally tag each Nike product during the production stage to aid in supply chain transparency. The brand says this is the next step in the integration of its “diverse ecosystem of physical and digital experiences, distribution centers and contract factories.”

When developing this new ecosystem, Parker explained that digitization not only needed to be set for expansion at scale, but tailored directly to the consumer. One of the ways that Nike can accomplish this is through its new “Express Lane” supply capabilities, headquartered in key cities.

“Today, the consumer rewards agility,” Parker said. “The companies who adapt and scale first are the companies who grow fastest. To do that, Nike is looking across the spectrum of the value chain from our factory partners to key cities, so we can take advantage of our most important opportunities.”

This begins at the factory level, Parker said, with the creation of a digital staging system for raw materials that need quick deployment in on-demand product lines. By way of example, Nike said it was able to chop lead times in half for jerseys when NBA superstar Lebron James switched teams to L.A. during the previous summer. Parker also said that the Express Lane and its ability to quickly tailor product selection to consumer’s needs is a key facet to scaling Nike’s new digital initiatives.

“When we offer more tailored product and experiences, we bring more value to the consumer and it opens up more opportunities to grow our business,” Parker said. “So, this quarter we extended a new, advanced algorithm in our apps that allows us to reward our most active members. We added this data-driven format to the release of the Nike app in Japan, and it helped lead to the most successful launch ever.”

Both of Nike’s flagship apps, the Nike+ app and SNKRS, have continued to grow and Nike said more than half of the transactions recorded at its flagship locations in Shanghai and New York came from members of the Nike app ecosystem—and those same members typically spend about 40 percent more than those who have no connection to their apps. The SNKRS app has also been resonant with consumers, leading to triple-digit growth in both traffic and revenue during the third quarter.

This is all part of Nike’s Triple Double Strategy, which aims to serve the consumer “personally, at scale” by leveraging the power innovation in both its products and its digital marketplaces.

“For example, we are energizing the marketplace with statement innovation and going forward, you will see us bring more distinction at the core level,” Parker explained. “Specifically, for next fiscal year, we’ve fast-tracked new collections under the $100 price point and we’re aligning the merchandising and marketing teams to support them throughout the marketplace.”

Nike’s state of newfound agility in terms of product creation and digital integration also comes at a time in which Adidas is working through a quarter in which of anticipated supply chain difficulties.